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The Effect of Affect on Economic and Strategic Decision Making

Author

Listed:
  • Benjamin E. Hermalin

    (University of California)

  • Alice M. Isen

    (Cornell University)

Abstract

The standard economic model of decision making assumes a decision maker makes her choices to maximize her utility or happiness. Her current emotional state is not explicitly considered. Yet there is a large psychological literature that shows that current emotional state, in particular positive affect, has a significant effect on decision making. This paper offers a way to incorporate this insight from psychology into economic modeling. Moreover, this paper shows that this simple insight can parsimoniously explain a wide variety of behaviors.

Suggested Citation

  • Benjamin E. Hermalin & Alice M. Isen, 2000. "The Effect of Affect on Economic and Strategic Decision Making," Econometric Society World Congress 2000 Contributed Papers 1136, Econometric Society.
    • Handle: RePEc:ecm:wc2000:1136
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    References listed on IDEAS

    as
    1. Paul M. Romer, 2000. "Thinking and Feeling," American Economic Review, American Economic Association, vol. 90(2), pages 439-443, May.
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    More about this item

    JEL classification:

    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
    • D99 - Microeconomics - - Micro-Based Behavioral Economics - - - Other
    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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